Thursday, October 11, 2007

Don't Catch a Falling Knife

One of the most common mistakes made by inexperienced investors is trying to catch a falling knife. This is the phrase used to describe the habit of buying stocks that are in freefall, and is a poor strategy, albeit common among new investors. Sadly, it is a common practice even among old and experienced investors. Ive even fallen prey to it myself.

Remember, there are two primary approaches to investing: fundamental analysis and technical analysis. We generally fall into the fundamental camp, since we evaluate stocks based upon their valuations, rather than looking primarily at their short-term price movements. We take this direction because we believe this provides the greatest potential for long-term success.

A single-minded view of only the fundamentals of an investment, however, can limit an investors profits and lead to some unpleasant positions. This is because there are real limitations to buying a stock as it falls. One may purchase a stock that appears to be a great value at $10, only to see it fall to $5. Surely, if the stock rises again to $20, you may have been right to buy at $10, but one might argue that you werent right enough. Buying at 5 would have yielded a 300% return, while you settled for only 100%. Furthermore, if you were convinced that $10 is a reasonable price, you might have saved time by buying it on the way back up instead of on the way down.

It is quite simple buying a stock that is in mid-fall is not a pleasant experience, and it isnt difficult to come up with a variety of other strategies that would bring happier outcomes.

Still, we mustnt avoid all stocks which have dropped. In fact, studies have shown that investors who buy stocks which have fallen hard tend to outperform the market on a regular basis. In fact, such a bottom-fishing strategy can provide one of the best performance levels of all strategy sets. Missing out on these opportunities can be costly.

The decision then is not whether to buy fallen angels, but WHEN. This is where a tad of technical analysis skill comes in handy. While technical tools cant really tell you which stocks to buy (unless youre willing to buy any piece of junk that happens to have good price momentum), it can lead us to a better understanding of timing. Once we have selected a good investment based on fundamentals, it is time to decide when to put the money down.

A good first step is to watch for a positive movement on good volume before committing. As long as the stock is dropping, there is a good chance you may get it at a better price. Better to wait a few days (or weeks) to assure your purchase is timed appropriately. Theres no advantage to buying before the time is right, even if the choice of stock is ideal. It is here that patience is a virtue. Dont try to catch falling knives, but be sure to pick them up after they hit the floor.

By: Scott Pearson

For more information, quesitons or comments please visit our website at You can also email us at or Scott directly at

President Scott Pearson is the Chief Investment Advisor for Value View Financial as well as a writer, editor, instructor, and business leader. As editor and publisher of Investor's Value View, a nationally distributed investment newsletter, he provides general money tips and investment advice to readers, and demonstrates a special knack for locating and providing analysis for undervalued stocks. To reach Scott for questions or comments please send an email to You can also visit his website at

Trend Trading or Counter Trend Trading - Which is Best?

When I first starting designing and testing trading systems, back in the early days of personal computers and trading software, I immediately gravitated toward counter trend trading. I would put up a stochastic, before I even knew what it was measuring, and my eye went right to all the divergences. A divergence is a basic counter trend pattern, where the price makes a new high, for example, and the indicator makes a corresponding lower high, thus forming a divergence with the price. The idea is that the new price high was not confirmed by momentum, which in this case was losing strength. When this pattern is seen, it is thought the market might have put in a high for the move, and it might turn around and go in the other direction.

I liked the idea of picking tops and bottoms. I was getting really good at it, at least on paper. I thought I had found the Holy Grail of trading. It all looked so easy. Almost every new high or new low on the chart was accompanied by a very clear divergence pattern. These patterns just jumped off the charts, screaming at me. I thought I had found the key to my trading plan, and it was going to be to be able to pick the point of a trend change. In other words, I was going to become an expert at picking tops and bottoms.

Then I started trying to trade all these easy patterns with real money. For some reason, whenever I would take a trade on one of these patterns the market didn't know it was supposed to reverse. It would just keep going in the direction it had been going. I would get several divergences and the results would be the same. That is, of course, until I got so burned out trying to catch the reversal and I would give up. Then, like magic, the perfect divergence pattern would appear, but I would not be in the trade.

I would caution anyone who thinks that they can pick the spot, with any accuracy, of a top or bottom in the market. I know many gurus and market timers claim to be able to do it. It can be quite gratifying to pick the top of a market, especially when all the media and analyst are on one side of the market, and you go the other direction and win. It gives you a very brief sense of superiority. You could see something that nobody else could, and you made a profit with this knowledge. However, after engaging in this activity for any length of time, one should review the account statements to really see if this has been a profitable way to trade.

It is remarkable how the eye can pick out major highs and lows on a chart, and to see many reasons why the top or bottom was so obvious. Maybe there was a classic three drives to a high pattern, or a head and shoulders pattern, along with diverging momentum or volume. It makes picking tops and bottoms look so easy. But if you analyze the chart more carefully, youll probably find two or three times as many set-ups that fail. The mind somehow glosses over the failed set-ups and goes right to the successful patterns.

After many frustrating attempts unsuccessfully using the stochastic indicator, I decided to study with the person who developed the indicator. I flew to Chicago to study with George Lane. Here was the guy who developed the indicator that almost everyone at that time was using to spot divergence patterns, and he talked me out of trading divergences, except in rare case. He only used the stochastic as a confirmation if many other conditions of trend change were present. I still like that indicator, but I use it in an entirely different way now. The time spent studying with him probably saved me years of frustration and a lot of money avoiding losses.

When thinking about trend change there are some things to keep in mind. First, trends tend to persist; often longer than you think is logical. When trends are up they often climb that wall of worry. Worry that the market will collapse without warning and take away your profit. Worry that the fundamentals don't justify the prices being traded. Logic might dictate taking profits, but there is worry of leaving money on the table. Uptrends tend to end more leisurely, at least in the stock market. For the public, it is easier to decide to enter a market or take profits in the calm of rising prices, where only greed is the factor. In down markets, traders often panic, and margin calls with fears of losing your home are often a motivator that results in more urgency. Therefore, bottoms can form quickly and sharply. Futures markets seem to be a bit more even regarding uptrends and downtrends, due to the nature of the mix of traders involved. A sideways trending market, or a market with a perceived lack of trend, will often lull traders into complacency, and with attention elsewhere, breakouts into a trend can be missed.

To summarize, I find the best strategy is to find the main, confirmed trend, whatever indicator or method used to determine that trend. Then trade only in the direction of that confirmed trend. Trading pullbacks, such as flag patterns, will usually offer the safest entry points. Trends have smaller cycles within the larger cycle. There are usually pullbacks within the longer term trend. One can still trade turning points of these smaller cycles, as long as they are in the direction of the longer-term trend. I will accept kicking myself for the few times I see major tops or bottoms that I will most certainly miss. This is a small price to pay for missing many losing trades resulting from trying to buck the trend. There are always trends somewhere, and in some timeframe. Going against the trend is like jumping into a river flowing rapidly in one direction, and trying to swim in the opposite direction. It is difficult and exhausting to do. It's much easier to float down the river in the direction that the current wants to go. The ego is more gratified in going the opposite way. The ego is also one of the most difficult aspects of trading to overcome.

Doug Tucker has a blog with daily commentary on stock indexes, precious metals, and other markets. There are many articles on technical analysis and indicator design and interpretation. To visit go to:

Forex Trading - Mindset of The Millionaire Forex Pro's

Forex trading can be learned by anyone yet few succeed so what separates winners from losers? While a method is important, so to is the right mindset and here we will look at 3 character traits all the top traders have.

1. Success Comes From Within

Top traders do their homework and devise a trading logic and forex trading strategy they know backwards in terms of how and why it works and why it will be successful.

Contrast this with the amount of losing traders who buy an e-book from a vendor and then blame them, when the few hundred bucks they spent, didnt make them rich! what did they expect?

Other traders blame anyone they can - from the market, to their broker and squeal like babies when they lose They are forgetting that they are responsible for their destiny, no one else.

Winners accept this and rely on themselves and so must you.

2. Confidence

If you have done your homework you will have confidence in your forex trading strategy and confidence is essential, as you have to follow your method through losing periods and know in your own mind, that you can emerge from periods of losses and emerge a winner longer term.

All successful forex pros have this trait and you need it to, as it leads onto a trait that is absolutely vital to forex trading success:

3. Discipline

This trait is needed to execute a method rigidly and not deviate from it.

Keep in mind if you cant follow your method with discipline, you dont have one in the first place.

If you think it is easy, think again its tough even for seasoned pros.

Many traders have great methods but fail due to lack of discipline.

Confronting the Beast

Trading forex is hard as only you can be wrong (its always right) it will make you look stupid (it does this to all traders) and it moves where and when it wants and there is nothing you can do about it!

However you can win you just need to obey its rules.

You are like a ships captain on the ocean. You need to obey its law and understand everything about it to travel on it safely.

For this you need to have knowledge, confidence in your ability and the discipline, to plot the right course If you can do this - just like the ocean has unlimited riches so does the forex market.

If you respect it and confront it with the right mindset you can win if you dont you will drown its as simple as that.


On all aspects of becoming a profitable trader including features, downloads and some critical FREE Trader PDF's and more FREE Forex Education visit our website at

Shock Secrets of Successful HYIP Investment - Do You Use It?

What is your goal? To earn money quickly, get additional income without work. HYIP market can realizes your dreams or makes you bankrupt. Where is limit? Listen to me and you will know how to be rich.

As successful HYIP investor you should know golden rules of sure investing. These rules are very significant and I want you to know them at your finger tips before you actually start your investing way.

Think Long-Term: Never ever think or plan to get rich within a short period of time. It is not reality. Usually good HYIP will never pay quite your principal and interest in less than 6 months.

Do not Quit: Winners do not quit and quitters do not win. It is a law of our life. The next step you take could be the winning step but if you quit, you'll never know how much you are loosing. Just keep investing and learning better ways to better your situation in life.

Be Prepared to Loose: In everything you do in life there are always times when losses occur. Life is all about ups and downs. Use losses or failures as a stepping stone towards greater success and also as an experience to make better investment plans, ameliorate on your strategies.

Diversify: Never put all your eggs into one basket. This is very important rule in HYIP investing. Invest in more than 5-7 programs to create multiple streams of investment income for yourself.

Research and research again: Always conduct your own research too. Always keep your ears on the ground, join HYIP forums, read the FAQs and Terms, read emails sent by the programs you join, check monitoring sites as and write their support if there are issues you are not clear on in their terms or FAQs. Ping their domain to define their IP addresses and use an IP search tool or software to determine their location. Do not forget to do a whois search to define if what the programs say in their About Us is the same as it is in the search. When you get this information, compare it with what they say about themselves. Also, NEVER sign up a program that is hosted on a free hosting service or sites that use the same scripts. Never reply to any email asking for a confirmation of your username and password.

Protect yourself, your e-currency account(s) and your investments: This is another very important point to note. Avoid using your real names when dealing with programs you are not sure of except when it has to do with receiving your money via wire-transfer where you have to give your full details to the program to enable transfer of funds to your account. Also use different passwords for your e-currency accounts, your email address(es) and your investment programs. This will prevent fraudulent programs from trying to use the same password you used to join them to open your e-currency account(s). NOTE: If you are using e-gold, make sure you apply the security features as explained by e-gold to protect your account.

Avoid Greed: Do not let the human factor of greed take over your investment decisions. The scammers use the human factor of greed to lure you into investing your money with them. From my personal experience, I lost a lot of money due to the fact that I allowed the emotion of greed to do my investing for me. Scammers offer very high and unrealistic interest rates within a very short time. When this happens, you will know immediately that this will not last but the emotion of greed will always tell you to give it a try and this is where your downfall and failures will begin. These scammers might pay you the first time just to encourage you to invest more and when you do, they disappear.

Please take note of these important rules above and you will enjoy investing in HYIP investment programs.

David Vagner knows shocking secrets how to make money with HYIPs. He will show you magnificent strategies which increase your profit. To know them read his FREE HYIP report here HYIP lessons or visit

Knowing When to Sell Your Stock

Knowing when to sell your stock is not as easy as deciding when to buy stock. One of the first questions that you should ask yourself when considering selling your stock is, can the money that I have invested in the stock be more valuable somewhere else? To evaluate whether the answer to this question is yes or no you will need to decide where else the money may be used. For example, you may have credit card debt that is draining your monthly budget. To evaluate if your invested money would serve you better by paying off your credit card debt you will first need to determine how likely it is that your stock will increase in value. If your stock is projected to increase dramatically in the next year then you may want to keep your money in the stock market. However, if the stock is not moving, or if it has been slowly losing ground, then selling the stock to pay off your high interest credit cards is probably a good option.

While most investors will base their decisions to sell their stocks on its performance or on a need to liquefy their assets, others base their decisions to sell on factors that are unique to the type of investors that they are. Day traders, for example, are more willing to sell their stock with small moves in the value of the stock then short term or long term investors are. If you dont know when you should sell your stock you should consult with your investment professional.

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The Top Currency Trading (Forex) Tips and Advice

Currency trading as a simple definition is the buying and selling of foreign currencies, exchanging one for another at a profit (or loss). The purpose of the sale and purchase is to make profits. But to benefit from profits you need to be informed and fully aware of when, where, and how a market movement will occur. The most successful traders are aware of all things that may effect one currencies price against another.

If you are serious about making money from Forex trading then you need to take on board many of the currency trading tips the experts can offer. You can learn to understand about market trends and its movement. You can learn about the meaning of trends moving up or down or sideways.

Furthermore, you can, and in fact should, learn what the trends within trends are, such as short term or long term or intermediate term trends. If you take on board the many hints and tips of Forex trading then you will be on the path to be a profitable foreign exchange trader.

Currency trading never sleeps and expects you to be on your toes all the time. The market is open for trading 24 hours a day, 7 days a week thanks to overlapping world timezones. Most brokers offer trading without taking any commission since they earn money from the spread they offer, however, you must ensure that there are no delays in execution of your orders.

Perhaps the biggest currency trading tip for the new trader is to start off small. Big money can both be won and lost in Forex so if you are a newbie then start with one of the free demo accounts that most brokers now offer. A Forex demo account allows you to practice in a real market scenario without the fear of losing any money. This helps you to get an idea about charts and quotes and streaming news. It is a good learning ground.

A free demo account is also a great way to learn how to use a brokers software and to get an idea of whether that broker is right for you. If you are not comfortable with it, tell the company, perhaps they can do something about it, perhaps they cant but if you dont ask you dont get! Afterall, if it doesn't suit you, find another broker.

Another tip for you to consider when choosing a Forex broker is whether to go for one that offers a client based or a web based software. Web based software is installed on the computer of the broker and you recieve a unique id and password with which you can operate your account from any computer with an internet connection. The advantage lies in the fact you can use any PC to access the software but the downside is that you are relying on a good connection to the brokers software.

On the other hand, client based software has to be downloaded and then installed on your own system and as such couldnt be used from any other system. The advantage here is that providing your own PC works you have everything set up ready to go at the click of a button, the disadvantage is that you cannot trade from any PCs that do not have the software installed.

There is one more currency trading tip about brokers. Check out their customer service, sometimes you might need a quick reply to a problem or question and the speed of their response could make or break a trade. If you find that the broker is not very prompt in replying to your queries then you should think very carefully before starting to trade with their software.

Another currency trading tip would be to have a fast internet connection. A slow dial-up modem could make trading almost impossible, in this day and age broadband is available pretty cheap so if possible ensure you have broadband installed before starting your trading career.

Give time to research online brokers. Taking advice from friends, acquaintances, and respectable websites that are in the same field would also be a good idea. After all it is your money and you should be careful about it.

For independent advice on choosing the right Forex broker please visit Forex Broker Reviews. If you are still undecided about trading Forex online then you can visit Forex Trading Resources for more information and advice.

The Psychology Of Market Timing

The biggest enemy, when market timing the stock market via mutual funds, ETF's, even individual stocks (or in any trading for that matter), is within ourselves. Success is possible only when we learn to control our emotions.

Edwin Lefevre's "Reminiscences of a Stock Operator" (1923) offers advice that still applies today:

Caution Excitement (and fear of missing an opportunity) often persuades us to enter the market before it is safe to do so. After a down trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high of a profitable trade may blind us to signs that the trend is reversing.

It is important to follow a tried and true timing strategy that puts you in the right position for established trends, and also gets you out of failed trends quickly to protect capital. Excitement results in losses more often than not.

Patience Wait for the right market conditions. There are times when it is wise to stay out of the market and observe from the sidelines.

Depending on your emotional ability to handle extreme volatility, that patience may result in a cash position or in bearish positions, which will trade that volatility. Do not underestimate the value of being in cash!

Conviction Have the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don't let fear of losing part of your profit cloud your judgment.

When trading a timing strategy, do NOT abandon the strategy. Emotions are the most common reason for abandoning a strategy and when emotions rule your decisions, they WILL result in losses.

Detachment Concentrate on the (trading plan) rather than on the money. If your trades are technically correct, the profits will follow.

Many traders have had the experience of being profitable on paper, but losing money when they execute the trades real time. If the trading strategy is not followed absolutely, it will fail. Again, emotions dictate losses.

Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.

Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends.

Subscribers to Fibtimer know our position on this. We are trend traders pure and simple and our strategies identify and trade trends. If a trend fails our strategies quickly exit.

Expect the unexpected Investing involves dealing with probabilities not certainties. No one can predict the market correctly every time. Avoid gamblers logic.

Many consider market timing as a fool's attempt to forecast the market. We agree with the their logic when the word "forecast" is used. NO ONE can accurately forecast (predict) the future direction of the stock market over and over. At Fibtimer we are trend traders. We do NOT forecast. We identify trends and when they are confirmed we trade them. Trend trading is ALWAYS a winner over time.

Limit your losses Use stop losses to protect your funds. When the stop loss is triggered, act immediately - don't hesitate.

The use of strict money management is the key to limiting losses. Fibtimer's strategies never allow losses to accumulate. When the strategy says sell, we do so without emotion.

The biggest mistake you can make is to hold on to losing positions, hoping for a recovery. Falling stocks have a habit of declining way below what you expected them to. Eventually you are forced to sell, decimating your capital. Human nature being what it is, most traders and investors ignore these rules when they first start out.

It can be an expensive lesson.

Control your emotions and avoid being swept along with the crowd. Make consistent decisions based on sound timing strategy and you will be profitable. Do not expect overnight profits. The stock market is where the profits are, but it is not a grocery store. You do not pick the profits off the shelves.

Profits will come if you follow the plan without deviation and do not make emotional decisions to jump ship based on news events, short term losing trades, or especially because the market is rallying today and you are in cash or bearish.

The strategy will win out over time. It will get you out of losing trades and keep you in the long-term profitable trends. Stay the course and win.

How Psychology Can Influence Your Investment Judgment

Studies have shown that human have shown patterns of irrationality, inconsistency and incompetence when arriving at decisions and choices when they are faced with uncertainty.

This field is better known as behavioral finance. This field explains how emotions influence investors and the markets. This explains why prices can go much lower or higher than the actual value when the companies faced with temporary setbacks or business opportunities. This also explains why there are market bubbles and crashes.

This is when value investing comes into picture. Warren Buffett believes in finding out the intrinsic value of a stock and buys large amount of it when the price falls below the actual value of the stock.

When a stock falls, most investors would not cut loses and withdraw his/her stocks. Instead, to avoid the pain and regret of making a bad investment, they might hold on to the stock until the stocks fall even lower until it worths nothing. An investor tends to follow the market crowd. When he sees that a lot of investors are dumping their stock in the market, they will start to fear and ignore their own judgment and start following the crowd. This could cause the stock to fall rock bottom. However, it is the value investors who profit from this who knows whether this is a permanent or temporary setback to the company stocks and whether prices will increase again.

Warren Buffett once said this Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQOnce you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

Some common mental mistakes made by others 1.Believing in the majority's judgment than their own 2.Tendency to follow the crowd, believing that majority of the people cant be wrong

Some killer tips on how you can use behavioral finance to your advantage
1.Prepare a checklist and set up a system on the criteria that a company should meet before you decide to buy or sell.(e.g. How is the management? Any changes in the management? Is it a good business ?
2.Do not buy a company stock which you do not know about
3.Seek out your opinion with someone (not too many). Make sure that you are able to support your judgement on why you should buy or sell a particular stock. If you are not able to answer, then maybe this is not a good stock to invest in.
4.Keep an open mind about stock prices
5.Learn from your mistakes and do not be obsess. Always have an entry and exit strategy. When your stock shows signs that you should exit, exit immediately and cut your losses. Learn from your mistakes and move on.

Stock Market Trader

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